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Industry reels as UK Chancellor tells them to expect post Brexit divergence

Regulatory compliance 'non-negotiable' for market access, says CBA

Compliance with EU rules is "non-negotiable" if the UK is to maintain post-Brexit market access in chemicals, trade associations have said, after Chancellor of the Exchequer Sajid Javid told businesses to expect regulatory divergence.

Mr Javid's remarks that "there will not be alignment" sent shock waves through industry. "There will be an impact on business one way or the other, some will benefit, some won't," he told the Financial Times in an interview last week, urging companies to "adjust" to the new reality.

His comments, coming weeks before negotiations are due to begin on a future UK/EU relationship, illustrate the trade offs the government faces between harnessing Brexit's promise of more sovereignty and maintaining access to the EU market.

European Commission president Ursula von der Leyen has made clear on several occasions that tariff-free trade depends on regulatory alignment, reiterating the EU position that the UK "cannot have its cake and eat it".

Mr Javid did not say in which sectors the UK might seek to part ways with the EU. But his comments were a major setback for the chemicals industry, which has fought for close alignment with REACH in three years of talks with the government.

Suggestions of divergence "do not take account of the situation facing highly regulated areas of the economy" such as chemicals, said Peter Newport, chief executive of the Chemical Business Association (CBA).

In this sector, he said, a direct relationship between regulatory framework and trade means compliance with REACH is the key to market access and non-negotiable.

"Failure to comply is a barrier to market access. Without market access there can be no trade."  

Regulatory divergence "pursues so far unidentified benefits" and risks additional border checks, delays and costs, Mr Newport added. Some 60% of the UK’s chemical exports go to EU markets, while 70% of imports are sourced from the EU.

'Period of alignment'

The Chemical Industries Association (CIA) said it "continues" to support regulatory alignment with the EU. It has restated that abandoning the EU REACH regime and establishing a UK one would cost at least £500m and would have "little, if any, environmental benefit". However, in a sign it may have adopted a more conciliatory approach, it is advocating a "period of alignment" with the EU.

Beyond Europe "we need a global framework" and the European framework is the most globally influential regime, the CIA says. "Like government, we want to export from the UK to all parts of the world and a regulatory framework will help, not prevent that from happening." Others in industry also appear to have somewhat softened their stance. The CBA says it should be possible to abide by EU requirements and at the same time have "national-only derogations" in certain areas.

The government needs to understand the complexity of the chemicals supply chain, said Tom Bowtell, chief executive of the British Coatings Federation, "and come up with an appropriate deal to prevent – or at least minimise – substantially added costs or disruption."

The chancellor's comments "raise even more concerns" about substantial regulatory divergence, after Prime Minister Boris Johnson's Brexit deal removed some of the previous commitments to alignment in chemicals, he added. And associate director of techUK, Susanne Baker, said non-alignment would create significant complexity and add costs. "We need clarity as soon as possible regarding the UK’s intentions with respect to chemicals so downstream users have sufficient time to plan."

Meanwhile, the devolved Welsh government published its priorities for a future UK/EU relationship. The UK must have "the fullest access to EU markets without tariffs and non-tariff barriers must be minimised", it said, stressing that it wanted "dynamic alignment" and continued membership of Echa.

Industry flight

A significant number of UK companies in the chemical supply chain have created subsidiaries in EU27 member states – with premises and employees – to guarantee regulatory compliance and maintain market access, the CBA said. Others have transferred key products to EU-based companies and "we are aware of European-owned chemical companies repatriating products."  

Article Chemical Watch 23 Jan 2020 - written by Clelia Oziel


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